5 Types of Mortgage Scams and How to Protect Your Clients (and Yourself)

In today’s high-pressure housing market, mortgage scams are becoming more frequent and more sophisticated. From falsified documents to outright identity theft, these scams not only endanger your clients’ finances—but can also put realtors, mortgage brokers, and other professionals at legal risk if they unknowingly become part of the scheme. This guide breaks down five common mortgage scams and offers practical ways to identify, report, and avoid them—protecting both your clients and your professional reputation.

1. Income and Employment Fraud

🎭 What It Looks Like: Borrowers submit fake employment letters, inflated income statements, or doctored tax documents to qualify for larger mortgages than they can afford. Some are coached by “document fixers” or rogue professionals.

🚩 Red Flags:

• Employer name can’t be verified
• Letter uses generic language or has no company logo/contact
• Lifestyle doesn’t match reported income

🛡️ How to Protect Yourself:

• Call the employer directly using publicly listed contact info
• Cross-check T4s and bank statements
• Document all due diligence and communication

2. Straw Buyer Schemes

🎭 What It Looks Like: A person with good credit is paid or pressured to apply for a mortgage on behalf of someone else who wouldn’t qualify. The real buyer may have poor credit or be trying to hide assets.

🚩 Red Flags:

• Buyer seems unfamiliar with the property or disinterested in the details
• Third party is overly involved in the transaction
• Funds are coming from someone not listed on the deal

🛡️ How to Protect Yourself:

• Verify ID and ask questions during buyer interactions
• Watch for signs the buyer is not the true decision-maker
• Report suspicious activity to your brokerage or regulator

3. Appraisal Manipulation

🎭 What It Looks Like: Fraudsters work with unethical appraisers to inflate property values, often to secure higher loans or maximize assignment profits on flips.

🚩 Red Flags:

• Appraised value significantly exceeds comparable sales
• Appraiser is not on lender’s approved list
• Valuation includes non-existent upgrades or misrepresented square footage

🛡️ How to Protect Yourself:

• Recommend reputable, lender-approved appraisers
• Review comparable sales yourself
• Flag inconsistencies or excessive inflation

4. Fake Down Payment Sources

🎭 What It Looks Like: Clients present borrowed money, undisclosed loans, or faked gift letters as down payments, violating lender requirements and increasing default risk.

🚩 Red Flags:

• Last-minute large deposits with no paper trail
• Gift letter is generic and unsupported by a financial statement
• Client is vague about savings or down payment source

🛡️ How to Protect Yourself:

• Ask for proof of where down payment funds originated
• Match gift letters with the sender’s bank records
• Notify the lender if anything seems inconsistent

5. Foreclosure Rescue and “Equity Stripping” Scams

🎭 What It Looks Like: Fraudsters prey on homeowners in financial distress, offering fake “mortgage rescue” solutions, often convincing them to transfer title or equity under false pretenses.

🚩 Red Flags:

• Deals that involve rapid title transfers with minimal explanation
• Unlicensed third-party “consultants” involved
• Owner unaware of the deal’s true financial implications

🛡️ How to Protect Yourself and Your Clients:

• Ensure all parties are fully informed about title transfers
• Confirm all professionals are licensed
• Refer vulnerable clients to legal aid or financial counseling

Final Thoughts

Mortgage scams aren’t just about financial fraud—they’re about exploiting people’s trust, and they often pull well-meaning professionals into legal trouble. Whether you’re a realtor, broker, or lender, staying vigilant can help you avoid becoming a target—or an accomplice.

📌 Educate your team, double-check everything, and report any red flags. The best protection is prevention.

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Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Reading or relying on this content does not create a lawyer-client relationship. If you require legal assistance or advice regarding your specific situation, please consult a qualified legal professional.